Tax break for community investors

Personal investments do not often benefit society, but there is one way people can get a market-beating return on their cash while also putting their money to good use.

It is mostly suitable for people with £1000 or more to invest

It is called Community Investment Tax Relief (CITR) and was started by the government back in 2002.

It is basically an income tax break for private investors of 5% a year over five years. And sometimes there are interest payments on top.

The money put in is then passed on in the form of a loan to regions and sectors around the country that need it.

The tax break on an investment of £1000 for example, means a £50 income tax bill reduction per year.

The Community Development Finance Association is the body that oversees this investment.

It seems to be an ideal scheme, which is a win-win for both sides

Bill, private investor

Its Deputy Chief Executive, Sarah McGeehan, explained why the returns can be attractive:

"The tax relief certainly offers a strong financial return in this current climate. Five per cent per annum tax relief is equivalent to 6.41 [% interest] pre tax for lower rate tax payers or 8.33 [% interest] for higher rate tax payers," she said.

And those rates are hard to find in ordinary savings accounts.

The scheme has not received much publicity, so only around 1000 private investors have signed up.

Bill from Lincolnshire is one of them. He received some inheritance from his late mother, who had been a great charitable giver. But Bill wanted more than pure financial benefit.

"It seems to be an ideal scheme, which is a win-win for both sides," he told the programme.

"It's a good investment for me, and from the charity's point of view, it gives it funds that wouldn't have been available."

How it works

Investors need a lump sum, and the scheme is mostly suitable for people with £1000 or more to put in.

The money will need to be locked up for at least three years

The money is lent to an organisation which has been accredited by the Small Business Service.

This can be a household name like Barclays or Charity Bank, or a smaller outfit like an approved credit union or trust.

These in turn lend the money to a variety of good causes.

The CDFA provides information to help investors decide where to put their money.

"There are a variety of organisations listed on our website that offer the tax relief. The choice is to understand what your expectations are of financial and social return and match them with the organisation," said its Chief Executive, Sarah McGeehan.

It makes me happy to make a larger sum available to charity than I would give them at this moment

Bill, private investor

However, the CITR scheme is not always risk-free. Some lenders, such as Charity Bank, will guarantee all the money put in, but others will not.

And the return can vary too. Some lenders will offer gross interest of up to 2% on top of the tax relief. Again, others do not.

Private investor Bill, values the flexibility of the scheme.

"It makes me happy to make a larger sum available to charity than I would give them at this moment. It's a bit like a living legacy, but it is important that I can get my cash back in the future," he said.

The money will need to be locked up for at least three years. And a tax return will need to be filled in every year to ensure that 5% tax relief.

Cruel Sea

Over 9000 businesses, individuals and charities have received loans to the value of £147 million since the scheme began.

One of the recipients is Age Exchange. The charity works to improve the lives of older people by using their reminiscences.

Without the Charity Bank loan, we would have been in very grave difficulties

Paddy Ross, Age Exchange

Its exhibit, Cruel Sea, commemorates the experiences of Merchant Seamen during World War Two, and is currently showing at the National Maritime Museum.

And without the CITR scheme and a loan from Charity Bank, the exhibit may not have been possible.

"Without the Charity Bank loan, we would have been in very grave difficulties. We got the loan, and that saved our bacon," said Age Exchange's Paddy Ross.

This scheme does offer a fairly unusual mix of financial and social return.

But, it is important to do thorough research before parting with any cash.

Look at the CDFA website, and check carefully to make sure the investment carries the Community Investment Tax Relief (CITR).